Financial markets in the US and Asia have fallen sharply as investors sell off shares in technology companies with the assistance of artificial intelligence (AI). Garry White, Chief Investment Commentator at Charles Stanley comments below.
Garry White, Chief Investment Commentator at wealth manager Charles Stanley, said: “After an astonishing bull run, valuations in the mega-cap ‘Magnificent 7’ are priced for perfection. As we saw with Tesla and Alphabet after their earnings report, any slight misstep will be a concern for investors. Both companies have seen their shares slide.
“Semiconductor related stocks have been under significant pressure. Technology stocks were also hit by concerns about the future of the global computer chip industry. This followed a report that the Biden administration could further tighten restrictions on exports of semiconductor equipment to China in the final months of his presidency. Donald Trump also recently said that Taiwan, the world’s biggest producer of microchips, should pay for its own defence.
“Falling inflation and the looming onset of interest rate cuts in the US and UK has brightened the wider economic outlook on both sides of the Atlantic. With technology valuations stretched and potential political threats ahead, investors have been looking towards the ‘left behind’ sectors – including mid and small caps, as they seek out value. In the past month the US small cap Russell 2000 index is up almost 9%.
“The recent sell off has been broad based, however, with small caps not escaping the rout (the Russell 2000 fell 2.1% on Wednesday). This shows that investor sentiment remains fragile as concerns over valuations remain paramount during the current earnings season. Equity markets are likely to remain volatile, with any slight disappointment in a company’s earning report punished harshly.”
